Does Inequality matter in Rich Societies?

The latest twist in the eternal debate over equality is the position currently adopted by neo-liberal politicians and expressed particularly clearly by the British Labour Party’s former prime minister, Tony Blair. In a rich society, it is argued, the great majority (say the top 80-85% of the income and wealth distribution) is materially so well off that differences among them are not politically important. What matters is that bottom 15-20%, who not only suffer real deprivation, but whose social exclusion leads them into forms of behaviour that threaten everyone else. The central policy conclusion that follows from this is that fiscal and social policies do not need to intervene much in market outcomes that concern that large comfortable majority; but that a combination of social and police policies have a good deal to do in relation to that bottom minority. This conclusion has the attractive (for neoliberals) consequence that the very wealthy can be left alone.

The principal objection to this position is that it sees inequality solely in terms of consumption and ignores power. Someone able to maintain a comfortable standard of living clearly cannot make the same moral demand as a person who is clearly (say) under-nourished, poorly housed and uneducated that resources should be diverted from the very wealthy in order to improve that standard. This is the case whether or not one accepts the thesis that it is important for some people to have incentives to become very wealthy by increasing the overall level of resources available to all, as that way we all become richer than if we insist on redistributing a static level of resources. The issue is simply one of whether it is a political priority to take from the rich to give to the comfortable. Here I do not want to inquire into either this or the incentives question. Instead I shall challenge the consumptionist approach to inequality, and argue instead for considering inequalities of power.

Although money belongs in the economy and power in the polity, and although in theory in capitalist market economies the economy and polity are separate spheres, the central reality is that money and power are mutually convertible. The very wealthy, whether individually or as corporations, are able to buy political influence – whether through lobbying or bribing political decision-makers, funding campaigns, or controlling mass media organs. Large corporations and wealthy individuals are geographically mobile across the globe, can choose in which jurisdictions they live, bring wealth to those jurisdictions, and can therefore exercise pressure on governments to provide policy environments congenial to them. These environments may then enable them to increase their economic wealth even more, offering further possibilities of political influence, and so on in a great spiral. Unless acquired in very obviously criminal ways, wealth also conveys social respect, even awe. This is useful, not just as something pleasant to enjoy in itself, but because it brings further political power: the very wealthy are asked for advice by governments and other public authorities; they acquire positions on governing bodies; if they decide to take up philanthropic activities, they can decide which causes to bless and which to ignore.

To decide whether these inequalities matter more than those of consumption – or, to put it more concretely, am I hurt more by a billionaire’s capacity to own a newspaper than by his capacity to own a luxury yacht? – we need to answer two questions: Are existing inequalities of wealth justified in ways that are relevant to the matter of power? How far does any positive-sum component of inequality of power compensate for its zero-sum content?

In economic terms, inequalities are justified both prospectively (entrepreneurs need an incentive to engage in activities that will create wealth) and retrospectively (unequal returns are a reward for having engaged in such activities). The latter follows from the former, as it would not be sustainable to take away incentives as soon as they have been achieved, but it raises the awkward problem of inheritance. For how many generations does wealth need to be transferred to function as a retrospective reward before it discredits prospective incentives? And we must remember here that the biggest stores of wealth are precisely those that have been inherited. When we move from the economic to the political, the question becomes even sharper. Why should large stocks of wealth, much of which is in any case inherited, be able to buy political influence? Is it necessary to the incentives that entrepreneurs need that they should acquire extensive political power too?

We can fully answer that question only if we consider the second one concerning positive- versus zero-sum outcomes. It is possible that the rich might use their political power to achieve goals that serve a common good, though it remains problematic how that good is defined. Let us take a really difficult hypothetical case: a super-rich individual uses some of her wealth to secure advice on how to avoid paying any tax, thereby depriving a public authority of a capacity to fund public spending. She then uses that money to fund some causes, which, though benign and worthy, would not have been funded by the public authority concerned. Has the positive sum of the money secured for the good cause outweighed the zero sum of the rich individual’s keeping to herself money that would otherwise have funded public spending?

But most cases are not as complex as that, as the example required that the wealthy individual wanted to do something public-spirited that the political process would not have done. Such cases are possible. However, we ought to be able to assume that, given democracy and open public debate, the number of cases where wealthy individuals (and corporations) want to use their political power in more other-regarding ways than does the public sphere itself will be fewer than where the opposite obtains. In other words, on the whole the rich should be expected to use their power to advance themselves. And when they do this in the polity as opposed to the economy they are not obliged, as they are in a pure market, to do so only by producing goods and services that people want to buy. They are more likely to seek privileges and advantages over the rest of us, as neoliberal theory itself teaches us in its critique of political power.

This is why inequality still matters within a society in which most people are materially comfortable: for its power rather than its consumption implications. And note a highly important point: the wealthy who are able to use power in this way are very wealthy indeed. If inequalities of consumption set a comfortable 80% against a poor 20%, those of power derived from wealth set a super-rich 1% against 99%.

About Colin Crouch

Colin Crouch is a Professor emeritus of the University of Warwick and external scientific member of the Max Planck Institute for the Study of Societies at Cologne. He is also vice-president for social sciences of the British Academy and has published within the fields of comparative European sociology and industrial relations, economic sociology, and contemporary issues in British and European politics.

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